HSINCHU, Taiwan -- After its annual general meeting next June, Taiwan Semiconductor Manufacturing Co., the sole chip supplier to Apple's new iPhones, will face new challenges from rivals without its 86-year-old founder, Morris Chang, at the helm for the first time since the company was established in 1987.

The world's largest contract chipmaker by revenue and market share has benefited from a healthy demand on the need for chips in smartphones and next-generation technologies, including connected devices and artificial intelligence.

Chang has indicated that the biggest challenge the company faces after his retirement next year will come from competition rather than market conditions, as chips remain an essential component serving as the brains for various electronics. He announced his retirement and succession plan on Oct. 2.

China still lags

But China, which has been aggressively trying to build its own chip technology with ample financial support from the government, is unlikely to catch up with TSMC and other market leaders in the short term, Chang told Nikkei Asian Review in an interview.

"It could take several years for China to yield results from its semiconductor efforts," Chang said. "Substantial investments to build capacities or to pour money into research and development does not mean China can create chip technology quickly," he said.

"It's not possible to only rely on substantial investments to rapidly gain leading-edge technology and achieve cost reduction. One really needs accumulated experiences," Chang said, adding that global chip leaders in South Korea, Taiwan and the U.S. have gained substantial experience, and "it won't be easy for China to play catch up."

To bolster China's self-sufficiency in meeting demand for its vast market, Beijing is currently injecting up to more than 1.2 trillion yuan ($180.4 billion) over a 10-year period to build a domestic semiconductor sector.

Since China still needs to rely on foreign supplies of chips, TSMC is building an advanced 16-nanometer chip production facility in the Chinese city of Nanjing to service its mainland customers. The 16-nanometer chips are adopted by the iPhone 7 model range.

Chang also said that while Taipei's ties with Beijing have cooled since the inauguration of pro-independence Taiwanese President Tsai Ing-wen last year, TSMC's relations with its Chinese customers have not been affected.

Samsung closes in

While Chang appeared to dismiss imminent Chinese threat as a possible near-term scenario, he was much more cautious when it came to locking horns with Samsung Electronics of South Korea on cutting-edge semiconductor technology.

"There is no way to be sure [that we still stay ahead]. We try our best. We work our hardest. We think the hardest," Chang said in the interview when asked whether TSMC will overpower Samsung in advanced 7-nanometer chips due to come out next year.

Nanometer refers to the size of transistors on chips -- the smaller they are, the more advanced and powerful they are, but also more challenging to make.

This year TSMC is manufacturing core processor chips for the iPhone 8 and iPhone X range with its 10-nanometer technology.

TSMC and Samsung have been battling for orders from first-tier customers such as Apple and Qualcomm. One key to winning the hearts of these top companies is the ownership of the most advanced chip technology.

The Taiwanese chipmaker has dominated orders for core processors for Apple's iPhone range this year and last year, while Samsung managed to win some orders from Qualcomm for baseband chips since 2015. Baseband chips allow smartphones to make phone calls.

Foundry, or making chips for other companies, is a business model pioneered by Chang at TSMC. Before TSMC was established, chip companies would design and make chips in-house.

Samsung currently controls less than 10% of the global foundry market, but aims to grab 25% in five years.

Mark Li, a Hong Kong-based analyst with Sanford C. Bernstein, said that Samsung may indeed have an opportunity to fight it out over technology with TSMC over the next two years.

"When TSMC and Samsung begin to use advanced extreme ultraviolet lithography technology to make 7-nanometer chips in late 2018 or in 2019, Samsung and TSMC may have an equal chance to win the battle," Li said, adding that Samsung has continued to invest significantly in its foundry business, even though it previously has not been performing well.

Over the past three decades since TSMC was founded, Chang attributed his company's success to its customers, because as a foundry player that does not have products under its own brand name, the most significant element to expand the business is to find clients that will be successful.

"Why did TSMC become so successful? We seemed always to be able to find the right partners over time ... like in graphic [processing], we have Nvidia, and in the mobile era we have Apple and Qualcomm," Chang said.

Limits of physics

Yet market watchers are concerned over whether there will be a point that TSMC will no longer to enhance its technology beyond 3-nanometer due to limits of the law of physics.

In 1965, Gordon Moore, who helped found Intel, noted that the number of transistors that can be squeezed into a chip will double every two years on average, and that corresponds to advances in computing power and drops in cost.

Chang appears unfazed. He said that now transistors are taking longer than two years to double, the time element in Moore's law "has broken down."

"If you allow three years per generation or four years per generation, then that's quite possible you can go beyond 3-nanometer," he said.

TSMC is planning to build its advanced facilities for 5-nanometer and 3-nanometer chips in the southern Taiwanese city of Tainan.

Yet "Hamlet" without the prince of Denmark may be an adequate analogy for TSMC without the Shakespeare- and Winston Churchill-loving Chang. He has been synonymous with the company for a very long time, and now the chipmaker will have to weather possible storms without him at the anchor.

Transition, tribulation?

Co-Chief Executive C.C. Wei will become the sole chief executive, overseeing the entire company, with a market cap of $191 billion, and deal with customers and suppliers, according to Chang. The company's other co-chief executive, Mark Liu, will assume duties as chairman to serve as the gatekeeper for major decisions.

Chang said that he handed over the responsibilities for customer relations to Wei and Liu after they became co-chief executives in 2013, and that Chang himself has cut back on overseas travel over the past four years as the two leaders have been making the necessary trips instead.

The succession arrangement, while not unexpected, still rattles TSMC partners.

"It's a very complicated task to negotiate with every customer about the pricing, plan capacities, and make judgments about which customer would be more successful bringing in more orders to the company later. Chang has been really astute in making those decisions and grabbing new opportunities over the decades," an industry executive told the NAR.

"It's extremely difficult for anyone to take over from such a visionary and charismatic leader. We are concerned whether Chang's successors could really manage to keep all the important customers and find new ones," the executive said.

Others in the industry are also exchanging quiet words about exactly what will happen once the current board, handpicked by Chang, leaves after extending another three-year term starting next June, though for now most analysts and semiconductor executives are not expecting a major shakeup anytime soon.

"We don't expect there will be any major change in the next two to three years with the current succession plan," said an executive of a TSMC supplier.

Li, of Sanford C. Bernstein, noted, "We expect a gradual transition as Chairman Morris Chang won't step down until next June and all directors of the board likely will remain unchanged for three years after that."